Hi All…
I’m new to this forum although I have read the magazine for years. I might be relocating to the Raleigh area in N.C. and am wondering what a good finish carpenter might expect to be paid if working for a builder/ contractor. My interest is in working in higher end custom homes more than big production jobs, if the oportunity allows it.
Thanks,
Peter
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I work in Charlotte, though as a deckbuilder. The answer to your question lies in whether you're a per-piece subcontractor, a lead guy looking for an hourly gig, or an intermediate-level (first mate type) carp working by the hour.
To the first, it depends on the job and builder. For the others, I would say $18-$23 and $12-$15 respectably.
Also, you should know that the 1099 is more the rule than exception here, so better to know you exemptions.
PS: Everybody wants the 'higher end custom homes' but good luck anyway.
Re your remark about the 1099.
Does that mean that these trim carps are truly independent subcontractors, and meet all the tests of "what is a subcontractor?"
Or are they in fact really employees of the builders and GCs, told when to work, when to report, when to quit, what to do, how to do things, come in on Saturday because we need to, yadda, yadda, yadda.
When builders and GCs flout rules to save on employment costs, they play this "sub" game.
Or are they in fact really employees of the builders and GCs, told when to work, when to report, when to quit, what to do, how to do things, come in on Saturday because we need to, yadda, yadda, yadda.
When builders and GCs flout rules to save on employment costs, they play this "sub" game.
That's what goes on around here. I'd say maybe 25% of all carpenter employees are actually on payroll with workers comp coverage.--------------------------
It's only satisfying if you eat it.
Really? Wow I thought that arrangement was pretty much a thing of the past at this point. That's kinda playing with fire isn't it? I mean, I thought the IRS cracked way down on that crap.View Image
Not here. My insurance guy was telling me that the insurance companies are the ones to worry about.
It's the main reason I still work alone. I refuse to cheat the system, and I can't compete with those that do. Atleast, with bigger jobs, that would require 3 or 4 employees.--------------------------
It's only satisfying if you eat it.
That doesn't fly here in Florida, but when I lived in Colorado most contractors who made any money did the 1099 thing.The first guy I worked for out there sold me on the idea of paying a lower percentage of income in taxes. But once I realized I stood no chance of any benefits or overtime (50 hrs/week), it seemed my boss was the guy getting the deal.It's funny you mention the "can't compete" thing. My current boss struggles with that constantly. We move pretty well on a rough frame and have a difficult time making a good profit for the man because prices are driven down by guys who don't pay WC, etc. (An old story, I know.)For your upcoming 2500 sq. ft. project, how do you suppose your framing sub makes it work? Unskilled labor? It sure is a tough market everywhere.
"The first guy I worked for out there sold me on the idea of paying a lower percentage of income in taxes."How did you end up paying less in taxes? I always have paid more when getting a 1099 since you must pay both shares of the payroll taxes.
Jon Blakemore RappahannockINC.com Fredericksburg, VA
To be perfectly honest, I don't know if I ACTUALLY ended up paying less in taxes. I didn't have much to compare it to as it was my first full-time job out of college. I set up a sole proprietorship to work for him. When I first met with him, he said that I would pay a lower percentage of taxes through the sole proprietorship than I would if he were paying me as an employee. So even though I would pay for my own health and liability insurance, the lower tax percentage would offset it.That's how he sold it to me. In reality, I don't think it worked out that way. He was the winner in the game if for no other reason than he never had to pay overtime.Jon, you definitely know more than I do when it comes to being an employee vs. a 1099 guy. I'd be interested to hear what the percentages would actually be in this situation.I can tell you this much: he had a tough time retaining quality employees.
Well I'm certainly no tax expert (I pester my accountant with a lot of questions) but here's how I understand it.Every dollar an employee works is taxed at 15.3%. The employee pays one half of that (7.65%, of which 6.2% is FICA and 1.45% is Medicare) and the employer pays the other half. When you are self-employed, you pay all 15.3% instead of 7.65%.There are some benefits to being self-employed: Since you file a Schedule C you have the opportunity to claim more expenses than most employed persons do. Of course, it takes a lot to offset that 7.65% hit you are guaranteed.Of course, being a 1099 employee typically means that there is no insurance coverage to protect you from liability or injury.I've wish they would audit every small business owner every year. It would be a pain but the dishonesty is so rampant it makes me sick.
Jon Blakemore RappahannockINC.com Fredericksburg, VA
You do get to deduct 1/2 of that self employment tax on line 27 form 1040. I would like to see the statistics on how many employees in small business like most of ours have any medical benefits. I am a one man sole prop. and if I did hire anyone it would not be with any benefits.
I agree that the IRS would have a field day with most of the 1099 "ind. contractors". As they should. Being on your own and a true sub opens up the possibility to deduct a heck of a lot things an employee cannot.
Jon:I did all three a few years ago (oddly enough, in Fredericksburg) when I was one of the principals in a small graphic arts firm.We had full-time employees that worked scheduled hours, with some benefits; part-timers that worked pretty much as needed, we paid our share of SS, etc., but no benefits and contractors that worked their own hours at home except when the job demanded they work in our shop (proprietary info to be secured, etc.)Our pay was competitive with other shops doing similar work, more or less in the upper-middle of the range.I never found that trying to skim costs by shafting my employees was good business. We always had good help that was willing to work. Only problem that caught us out on occasion was a contractor who was doing another job when we needed them. We either used another contractor or told the client (if they insisted on a particular artist) that there would be a delay if they required that individual to work the job.The one time we were audited by IRS (one of those "pick a tax return out of the pile" and audit them things) I was complimented by the agent for how we handled our employees.Considering that a fair amount of our work was Government contract stuff, screwing with the IRS would have been stupid in extreme.Employees are like tools in a way, you get what you pay for. (I realize that sound rather harsh, but it's true. Good employees and good tools don't come cheap.)Leon
RE:
Every dollar an employee works is taxed at 15.3%. The employee pays one half of that (7.65%, of which 6.2% is FICA and 1.45% is Medicare) and the employer pays the other half. When you are self-employed, you pay all 15.3% instead of 7.65%.
It's really all smoke... the employer pays half yes... BUT it's your money it's part of what it cost to have you as an employee... nothing is given and nothing is free... insurance healthcare ect... it's all part of the "pay package and is figured on the front end... yes you make $10hr but it cost the the employer $15hr to have you... so it's all money you earned...
as for 1099 people... as i understand it and someone will correct me if i'm wrong... it shouldn't be "by the hour" it should be a "I'll pay you x to do this job to these spec's in this timeframe ect..." after that there should be no other "employer/employee relationship type situation...
I blame the IRS... they make it very hard to "do the right thing" paperwork, wrong information, they screw up...no big deal ...u do and years later you owe 100k...
audit every small business every year.... dude ur a freak'n moron.... most small business people make less than most of their employee many times... but for them putting their butt and everything on the line everyday most people in this country wouldn't have a job... some may see gray areas in the law but i'd bet very few are getting rich... most just worry alot on how they will make payroll or how they can outserve the walmarts so that they can keep a few people loyal... and you want then to be audited every year by the irs... do you have any idea what that cost a business in time? I'll bet 100 to 1 you are a democrat... some people do and other bitch... pretty much know where you land...
p
Here's a link to what the IRS says about employee versus sub.
http://www.irs.gov/businesses/small/...=99921,00.html--------------------------
It's only satisfying if you eat it.
"audit every small business every year.... dude ur a freak'n moron. and you want then to be audited every year by the irs... do you have any idea what that cost a business in time?"
Have you ever been through an audit?
I haven't so I can't speak from personal experience. I cannot imagine that they would take that much time if your books are in order.
"most small business people make less than most of their employee many times"
So this is license for the employers to skirt the law? If they're poor businessmen that's not my problem.
"I'll bet 100 to 1 you are a democrat... some people do and other bitch... pretty much know where you land..."
Well, I guess the odds are not in your favor. So is wishing that all business's had to comply with the same rules that I do a trait of a democrat?
Jon Blakemore RappahannockINC.com Fredericksburg, VA
dude you have no idea... when the irs comes to aduit... they ask for desk space..they move into your office... i had one stay for over 3 months there everyday... you spend all your time play'n run & fetch it.... try'n to find things from 2-3 years ago... there are always grey areas and being a small business person you never really know if what you are doing is correct... and as you know over half the information given out by the irs is not correct... been thru it 2x once on a sales volume of over 5mil a year we owed them $53 yep $53 for 3yr audit...that was close to 12million in sales... and no one could even explain why... it just as well could have been 50k... but at $53 you pay and you go on... I have no idea how much it cost us at the time we were 4 full time and one part time person office but it had to cost us 3-400k in sales, not to mention it just doesn't look good to people who come to see you that the irs has moved in with you... we heard from more than one person that "we heard the irs had shut you guys down"... so an i bitter? not a bit... but uninformed people who have no clue the stress they wish upon others does tick me off... It's hard enough try'n to wear 10 hats and trying to take care of those you employ and serve... the gov should wrap their arms around all of those that emply and try to do the right thing and better themself and others vs as you want make'n one more hoop to jump thru...
if you would spend less time worry'n about what others are doing and wish the "government" would do something you'd be alot happier... the deal is people who are going to be dishonest are going to be dishonest... a million ways to be.... I was raised to do the right thing...period... laws are for people who don't already know what the right thing is... kinda a min standard...
I rent alot of commerical space, many times to people just starting out... I always ask a ton of questions and many times I've tried to convince people not to go into business not to kill a dream but to save them from themself it's not hard to run numbers and know who will and won't make it.... working your butt off will save you sometimes but not always... been there done that... I've had up to 60 employees...played banker, lawyer, bail bondsman...ect... been broker than anyone ever knew but with people depending on you do what you have to do to make sure they are paid... I'm sure there are problems out there that need to be solved but your ideas just hit a nerve ... i've never really seen the gov solve too many problems and I sure wouldn't wait on em to solve mine...
sorry for the rant...
p
started out with nothing..and got most of it left
Ponytl,Well you must be doing things above board if you had an auditor look over your books for three months and found so little wrong.As I said before, I have never been through an audit but most accounts of audits I've heard of have been pretty quick (Blue's anecdote, for instance).My point is, I believe the I could spend one week of my time and find 10 contractor's who are not operating as they should. I bet most of those 10 could not last three months because they would have to declare bankruptcy after the first week of review by an auditor.I'm not necessarily concerned with the fact that the government and insurance companies get their money but with the fact that I subsidize the dead beats with my taxes and insurance premiums.
Jon Blakemore RappahannockINC.com Fredericksburg, VA
pony... i'm trying to figure where you come down on this ..
if you are saying legitimate 1099 subs should be treated fair, and GC's who use legit 1099 subs should be treated fair... then we're on the same page
but what's this ....<<<
audit every small business every year.... dude ur a freak'n moron.... most small business people make less than most of their employee many times... but for them putting their butt and everything on the line everyday most people in this country wouldn't have a job... some may see gray areas in the law but i'd bet very few are getting rich... most just worry alot on how they will make payroll or how they can outserve the walmarts so that they can keep a few people loyal... and you want then to be audited every year by the irs... do you have any idea what that cost a business in time? I'll bet 100 to 1 you are a democrat... some people do and other bitch... pretty much know where you land...>>>
jon was bitching because lots of GC's have employees that they pretend are 1099 subs... he would like the regulatory agencies that we are all subject to to do thier job and regulate the bad guys a much as they do the good guys..
i'm a good guy.. i self regulate.. i operate a legit business, i comply with the letter and the spirit of the regulations.. there are lots of subs i like to work with , but i can no longer hire them.. they decided to play the stupid "employerwithnoemployee" game.. so if i hire them i am in collusion with them .. i get a piece of paper from them that shows they have GL and no employees.. i get a DWC-11IC in lieu of a WC certificate.. again stating that he has "no employees".. of course he shows up with 4 guys... each of whom has a GL policy, and if he's playiong the game .. he has a DWC-11IC from each of them too, but i don't .. and i really don't know if he has this or not.. i do know that he is operating a lot cheaper than some other sub i could hire with real employees and a real WC policy.. i alos know that if one of them gets injured on my job.. they'll go after their sub "boss", but if they get nothing from him.. i'll probably get dragged in too... and my insurance company knows that they will be on the hook for the disabled worker too... or at least have to defend me ( i hope they will )
so.. determining that this must be a "whining democrat thing" .. nah.. it 's a question of justice.. should workers be protected from injury on the job ? who should bear the cost of their disability ? the worker ? or the employer ? well, risk & reward.. the employer and his insurance company assumed the risk.. they should get the reward.. and the worker should be protected..
those who commit this fraud are screwing you, they are screwing the worker, they are screwing the worker's family &they are screwing society , .... where's the justice ? and why is this a "whining democrat " thing ?
want a good test case ? how about the Station Night Club Fire Disaster: 100 dead... including 5 employees.. and several employees permanently diasabled... but wait , they weren't really "employees".. they were 1099 subs... and no WC policy in effect.... hah, hah, hah.. can you spell Derderian Brothers ?
RI used to be really bad.. they had that stupic rule about you were not "required" to have WC if you had 3 or fewer employees.. something about being kind to "small business".. of colurse the same law said that your were still financially responsible for injuries to your employees..
it got a little better when they changed it to a requirement if you have ONE employee.. but in the last 10 years i see more and more commiting fraud with the "1099 sub" dodge..
so.. are you and i on the same side of this issue or not ?Mike Smith Rhode Island : Design / Build / Repair / Restore
we might be on the same page... and seeing things a little different... which is all good...
alot of what is refered to is problems of not whats legal... but what your/our insurance company requires of us...
I want as few employees as i can have... I happen to like to work... I like getting dirty and have'n a hammer in my hand... I've done the "200 people depending on me thing" and it's just not for me... so if i can hire crews to do what my small crew can't, I like that option...
I don't see how you can pay by the hour and claim "they don't work for me"
If a guy gives me a price to do a job to my specs and we agree on a price... "he's doing work for me...not working for me" he has a name on the side of his truck thats not my name... and he has insurance... I know it's not that simple but i like to think he knows what he's doing I hate to think i have to run his business too...
alot of guys around here will send guys to one of the temp labor places like LaborReady... and hire them from them... not sure how it all works... but i guess they are try'n to cover their butt...
p
i had one guy that insisted he wanted to maintain his Independent Contractor status.. he had all the right paperwork, and licences & ins.... but it was still sticky.. he billed me by the hour.. if shid had hit the fan.. hard to say what a lawyer could have got out of our company
i like working too.. but we can't do the work without employees. i have three.. and we do all the laboring , carpentry & roofing.. everything else is subs....
it's harder and harder to find subs who are legit.. which puts me in a tough position with my insurance company.. at annual audit tehy review every sub for certificates.. no certificate.. i pay their classification as if their entire bill was for labor
i went thru one audit.. as you described. this was for state sales tax.. and the auditor camped out in our office for 3 months.. in the end he came up with $2300... which we proved down to $900...
but the time devoted to babysitting him was incredibleMike Smith Rhode Island : Design / Build / Repair / Restore
Mike,I often rejoice that VA has no sales tax. What a pain for service workers.
Jon Blakemore RappahannockINC.com Fredericksburg, VA
Here in Canada you are either employed or selfemployed. If you are selfemployed you negociate the rate of pay or the total amount of a contract. You work on your own time. You pay your own comp and other deduction which you will have to include in your rate (the contractor does not have to pay anything other than the contract price, hourly rate or piecework) You can write off your business and all expenses.
I am selfemployed for over 35 years, would not have it any other way. It is always a supply and demand situation. In low times you have to cut back, in good times you can ask more. You are free and dont have to chase after every dog.
How did you end up paying less in taxes? I always have paid more when getting a 1099 since you must pay both shares of the payroll taxes.
Employees always pay more because they don't have all the exemptions and writeoffs that independent contractors have. You are focusing all your thoughts on both ends of the SS tax but normal business deductions will easily create a favorable tax situation to a business person over an employee.
Employees are getting ripped off by Uncle Sam. They always have and always will.
blue
Blue,What deductions could a person who is basically a carpentry employee functioning as a "sub" utilize?I can think of a few- vehicle, tools, meals, business insurance, business taxes, etc.Of course, the last two are not paid by an illegitimate sub so that's out.Leaving us with vehicles, tools, and meals. Technically neither a sub nor an employee can deduct "commuting" miles so that's a wash. A sub and an employee can both deduct legitimate travel expenses, so there's no difference (afaik).Subs can deduct tools, employees can deduct "small tools and supplies needed for your job". Once again, a wash.Meals is a sticky situation regardless of what your status is.If you said that subs can get away with a lot more deductions, I would agree, because the little guys don't often get audited. On the other hand, if everything is above board, my understanding is that the deductions are pretty much the same.
Jon Blakemore RappahannockINC.com Fredericksburg, VA
"Leaving us with vehicles, tools, and meals. Technically neither a sub nor an employee can deduct "commuting" miles so that's a wash. A sub and an employee can both deduct legitimate travel expenses, so there's no difference (afaik).Subs can deduct tools, employees can deduct "small tools and supplies needed for your job". Once again, a wash.'There is a difference, that can be big in some circumstances.An employee has a 2% AGI reduction and then it goes on as a itemized deduction. Depending on their filing status and other deductions they might not get all (or any) of the deduction.Other big differences are health insurance deductions. And maybe retirement if you can put in some more the higher amounts.
Edited 2/1/2006 12:22 pm by BillHartmann
Giving someone a 1099 when he is really an employee is called tax fraud. It is a crime. Don't piss anyone off who might report you to the IRS. Ken Lay may be looking for a roommate soon.
Bill,Since we are an sub-S corp the health insurance is handled differently. How does an employee deduct insurance if they are a sole prop?As to the 2% of AGI limitation, I would guess that anyone who is spending enough to get above that threshold is doing side work that he can deduct the purchases against.Of course, that's assuming he's claiming the revenue of the side work whcih brings me back to the argument that if you're legitimate there are few differences.
Jon Blakemore RappahannockINC.com Fredericksburg, VA
"How does an employee deduct insurance if they are a sole prop?"Which are you talking about, employee or sole prop.For an employee the only medical insurance deductions is as a medical expense on itemized deductions. And that is subject to a 7.5% AGI threshold.For SP health insurance is an above the line adjustement to income. This is fairly new and it was phasesd in. I think that it has only been 100% deductable for the last 3-5 years.BTW, another place a SP can come out ahead is on milage. You where right earlier that neither can deduct commuting expenses. However the SP has much better control over his work locations and trips. In some case the firt location can be at home. Another thing is that he can arange a stop at a nearby lumber yard or supply house and get material, even if it is one 2x4. After that all the milage is business until the last trip home. For that he can stop by the same lumber yard to see if they have his speacial order in although he knows that it won't be there for 4 more weeks and they will call him when it is in.
Sorry, I meant:"How does someone deduct insurance if they are a sole prop?"Your comment on mileage makes sense but could an employee practice the same way?
Jon Blakemore RappahannockINC.com Fredericksburg, VA
"Your comment on mileage makes sense but could an employee practice the same way?"Only if the employer directs him to do so. The question is there a business reason for the trip. Your basic comment about there not being much difference is taxes is true. the health insurance is really the only big one.But in many areas, such directly the trips to maximize deductability the SP has more control over how/when/where extra and it can add some small, but noticable tax benifits.
Bill,Thank you for your answers.What kind of background do you have? I'm thinking you were an El. engineer? Did you also do some accounting or is it just that your hobby is reading the tax code?
Jon Blakemore RappahannockINC.com Fredericksburg, VA
You are right my background is as an electrical engineer.But I was self employeed and have done my own taxes for a long time. And a while back I was a church treasuer. While it was very small I did learn a little about ciruclar E and W-2's. And I do the taxes for a friend of mine that is also self-employeed and has some rentals so more background.I am now semi-retired and doing some handyman type of work. I took the H&R Block tax course last fall and was even thing of working for them. But after finding out how they pay and the typical types of clients I decided not to. Than and a friend of mine bought a house to flip and I hve been busy working on it.
What deductions could a person who is basically a carpentry employee functioning as a "sub" utilize.
Jon, the carpentry "employee" who is functioning as a "sub" is actually in a much better situation, taxwise, than you give him credit for.
First off, lets discuss the possibilities if the IRS does indeed declare him to be a independent contractor. If that's the ruling, he is entitled to every business deduction that is legal for any business man in the country. He has the same exact rights as Bill Gates himself for claiming business deductions. He can incorporate and use a SUB S, or form an LLC or even a C corp, figuring every tax angle that is available. He could theoretically take his Director wife out to the finest eating establishments and write off the meal. He could take his neighbor to the ball game and write that off. He could fly to Vegas and investigate real estate deals, while stopping off at casino for a little relaxation.
He could fly his board of directors to Orlando, Fl and hold a board meeting.
When he buys a company computer, he pays for it with pretax dollars. That means that an employee earns $2600 to buy a $2000 computer. A business man only has to earn $2000. Those same ratios apply to just about every business item that is purchased. Employees pay 1.3 times the retail price for everything....like computer desks, printers, stereo systems, televisions etc. Almost everything a businesss man owns is business property.
Contractors can deduct for home offices. They can write off their "commute" if they are carrying tools, especially if they first commuted to the home office from the home bedroom, then left the office and traveled to another job that day.
Most people are scared to take all the legitimate deductions. They think the boogey man will come and get them but in reality, it's all legit and when the tax attorney moseys up to the agent's desk, the agent will capitulate, as long as there are actual receipts to back up the claims.
Now lets look and see what happens if the IRS declares the independent contractors to be employees.
That's a great situation for the employee too. He would lose a lot of those deductions unless he was smart enough to be running multiple business'. But the good news is that his gross pay would be treated like it was a net take home pay and the employer would have to chip in all the extra overhead on top of the pay, including fica and futa, fed witholding and state withholding.
I think you get the drift. No one has anything to fear about taking advantage of the loopholes that the legislators have intentionally left in there for business interests. When I was young, I used to be angry at the system because I was an employee. Then a wise old guy told me that even if he never did any business, he would always have a business. I started thinking that since I couldn't fight them, I'd join them.
Lastly Jon, this will prove it beyond a shadow of a doubt. If being an employee was better off from a tax perspective, don't you think all the wealty business people would be lining themselves up in the system as employees? They don't and there's a very good reason for it. In fact, the IRS requires C corps to pay their officers or someone a salary because if they didn't, no one would take employee wages.
blue
"First off, lets discuss the possibilities if the IRS does indeed declare him to be a independent contractor. If that's the ruling, he is entitled to every business deduction that is legal for any business man in the country. He has the same exact rights as Bill Gates himself for claiming business deductions. He can incorporate and use a SUB S, or form an LLC or even a C corp, figuring every tax angle that is available."First off you have it backwards. If you are a corp then there is no question about being an employee. It is only when payment is going to an individual that there is a question of employee/sole prop status." He can incorporate and use a SUB S, or form an LLC or even a C corp, figuring every tax angle that is available. He could theoretically take his Director wife out to the finest eating establishments and write off the meal. He could take his neighbor to the ball game and write that off. He could fly to Vegas and investigate real estate deals, while stopping off at casino for a little relaxation.He could fly his board of directors to Orlando, Fl and hold a board meeting.When he buys a company computer, he pays for it with pretax dollars. That means that an employee earns $2600 to buy a $2000 computer. A business man only has to earn $2000. Those same ratios apply to just about every business item that is purchased. Employees pay 1.3 times the retail price for everything....like computer desks, printers, stereo systems, televisions etc. Almost everything a businesss man owns is business property. Contractors can deduct for home offices. They can write off their "commute" if they are carrying tools, especially if they first commuted to the home office from the home bedroom, then left the office and traveled to another job that day. "No the sole prop can deduct the same LEGIMATE BUSINESS EXPESNSES. There are some differences in terms of retirment plans and the like, but for operating expenses the deductions are the same.However, you are limited to ORDINARY AND NECESSARY BUSINESS EXPENSES.Many of the items are not ordinary and nescessary. The TV and board meetings in FL are not.And just having tools in the car does stop it from being an commuting expense.
Many of the items are not ordinary and nescessary. The TV and board meetings in FL are not.
And just having tools in the car does stop it from being an commuting expense.
Spoken like a true accountant!
Bill, how could we possibly show the safety video training tapes unless we had a television?!!!
A board meeting can be held anywhere in the world. It may not be necessary to have it in Orlando, but if it is held there, it's still a legit board meeting. If an IRS agent decided to not allow the expenses associated with that, the taxpayer might possibly have other reasons for being in Florida that were business related. For instance, that lowly carpenter might be scoping out the work situation in Florida to determine whether he might want to transfer his business interests there, in addition to holding his board meeting.
The point is that any decent tax attorney would win that argument, providing that the lowly carpenter didn't open his mouth first and say something stupid.
I find it ironic that every working class stiff thinks that because we are only carpenters, were not entitled to every single legit business deduction that the "big boys" get. Quite frankly, I've never been intimidated to take my legitimate deductions and I'd never let some ultra conservative accountant tell me that I'm not entitled to them. Maybe THEY are not entitled to them, because they don't think they are, but I am entitled to them because I think I am.
The point of the reply to Jon was that each independent contractor has a wide array of expenses that he can write off. If he does his bookeeping correctly, he'll certainly be much farther ahead than an employee without any business deductions.
Are you trying to say that employees come out ahead of business in the deduction arena?
blue
Blue,I must agree with Bill. Now let me say that I may not have the most progressive accountant in the country but I like his style.Ordinary business expenses are legitimate, but if a guy who is billing at $25/hr. deducts $35,000/year for business expenses I believe he would be on the losing end of an audit. Now of course, there is a good chance that he is never audited but that doesn't make it right or prudent.
Jon Blakemore RappahannockINC.com Fredericksburg, VA
Ordinary business expenses are legitimate, but if a guy who is billing at $25/hr. deducts $35,000/year for business expenses I believe he would be on the losing end of an audit.
What makes you jump to the conclusion that someone that billed at $25.00 per hour would automatically lose an audit because of $35,000 in business deductions? I don't see anything there that indicates that a deduction is not allowed.
You are implying that a lower payed person isn't eligible for evey legitimate deduction, which is contrary to the US tax code. There isn't any corelation. In fact, lower income people often get the same and more deductions.
Actually, the IRS never really knows, nor cares what an independent contractor charges. When they look at your gross and see only 10,000 in income, they don't know if you did 1000 jobs at $10 or 1 job at 10,000. But, if you perhaps had a major capital expense, such as a Skytrak, that might have cost you $90,000, you might be able to write off the entire amount in one year! So, if you had only 10,000 in income, and that 90k write off, you'd show a net loss of 80k. Let the auditors come!
Jon, no one has to be afraid of taking their legitimate writeoffs. The tax code is filled with intentional loopholes and gray areas and areas of opportunity. We are all entiteld to deduct what we consider ordinary and necessary business expenses. We are the masters of our domain. That doesn't give us license to fraudulently make claims, but if theres a receipt, then it might very well be a write off. If the IRS later determines that it's not allowed, we'll simply owe the tax with some interest...or perhaps a settlement might be in order. For most lower income independent contractors, they don't really have anything to lose if they lose out on a few deductions. Even the IRS can't suck blood out of a rock.
blue
Blue,My point was not to dwell on the billing rate of the contractor, I'm saying that if somebody deducted 70% of their income I imagine that would draw some attention.Have you ever been through an audit with deductions such as you mention? I'm certainly for the IRS getting as little of my money as possible but the deductions that you describe seem like they have "tax evasion" written all over them.Once again, I'm no expert and my accountant is probably not the most risky guy in town so I'm open to the fact that I've been giving up income that I could safely keep.
Jon Blakemore RappahannockINC.com Fredericksburg, VA
http://www.irs.gov/app/understandingTaxes/pdf/whys/theme1/lesson3/T1L3lp.pdf
Was going to paste but can't in the edit mode.
Edited 2/2/2006 11:12 pm ET by rasconc
Jon, I have never worried one iota about the IRS auditing me. I'm pretty diligent about saving receipts and if they are tucked into a business file somewhere, I pretty much already have a story attached to them. For entertainment receipts, I normally just scratch the names and nature of the business we talked about.
If your accoutant isn't working in the gray areas, I'd suggest getting a new accountant. Its that simple.
I have never been subjected to a full audit. Very few people ever are and the IRS could never afford to do them. Most audits that the IRS do are very simple...requests for more info or math corrections, etc. So, yes, I've been audited. I just send in the info or accept their new math.
I don't fear an IRS agent doing a full audit on me either. He is welcome to come to my home office and hang out there all day for a day, week or month and I'll let him decide whether it meets the IRS requirements. I don't take depreciation because that would cause recapture issues and dilute my homestead exemptions etc but I'm dang sure going to write off the heat and electric and water that I need to service the office. I'm not going to sit in an unheated, no electric office unless the IRS agent is willing to do so.
If he wants to check my computer usage to make sure it's only business, he's welcome to. When he comes to check, he won't find any domestic usage. He's welcome to jump into my work truck too. By golly, I'll give him the ride of his life and I hope he won't mind hanging with me that day...I'll make sure I give him the full life cycle of a good old fashioned 20 hour workday....
Basically, I'm trying to tell you that every young buck that is employed as an independent contractor can be a legitimate business man. There is nothing preventing him from dilligently studying the US tax laws and implementing every legal tax advantage that is in the code. You guys are trying to somehow reduce their legality because you think their employer is giving them a raw deal, but in reality, they aren't. The only reason it is a raw deal is because they are getting paid too little, but EVERYONE is getting paid too little. We all have to fight to get our rates. Some are just better at it than others.
I said earlier and I'll repeat; I would never take a full time job as an employee and not have something on the side going on to make me a legit business. The Irs tax code is set up for the rich guy, not the employee. The great thing about America is that there are no barriers to becoming a business. That isn't true in all countries but here in the good ole USA ANYONE can be a business. There isn't even an age restriction!. The only barriers are the one self imposed.
And please keep in mind Jon, that I am not an advocate of crazy no tax schemes. I'm just a guy that saves every receipt, then finds a reason why it fits a business need of mine. I determine how I run my business and I am the final decision maker about whether I write it off or not...not my accountant. I'll listen to his advice, but I'm still the boss.
Another reason that I don't fear major audits is because I have some very powerful, but cheap tax attorney coverage. You wouldn't believe how beneficial a tax attorney is.
blue
Ok Blue,
You got me seriously thinking about this.
so by my cyphering,
in order for it to work out in my favor, I will need to take enough deductions to make up for the extra 7.6% I will be paying in taxes.
currently I deduct Tools, truck, Insurance, work clothes and publications.
so for example:
40000$/year x 7.6% = 3040$ in taxes
3040$ in additional taxes /15.2% self emp.tax=20000$ of deductions to break even.
I know this is over simplified so please teach me what else I am not considering.
Thanx
Mr. T.
There's a steering-wheel in me pants and it's driving me nuts!!!
You just about have to figure it all the way through both ways. One thing to consider is if that $40k was gross labor income either as employee or self emp you would have a 10000 standard deduction and 6400 in exemptions if married with no children. The Self Emp Tax is only on net taxable income (and only on the business part). Also 1/2 of that 15.2% is deducted to get your adjusted gross income before you hit the tax table.
You are basically correct in that it is not a slam dunk better deal. In my opinion it is sort of like the argument that you should buy a house because the mortgage interest is deductable. Those numbers do not work out either. Throw in the satisfaction of owning and equity, etc then owning makes sense but not on the merits of interest deductability by itself.
There is no simple way to evaluate these type things without calculating them through from start to finish and see what the bottom line tax implication will be.
i know where jon is comming from.. i've been a legit employer for 30 years.. and i've always operated at a distinct economic disadvantage to my competition
my typical competitor has three "subs " who have been working exclusively for them for 5 or more years .. they are 1099 subs and they don't pass the smell test.
there are a lot of things wrong with being a non-legitimate 1099 sub.. lets look at it from the employee/ sub's viewpoint..
first his rate is lower than it should be.. if he were a true Independent Subcontractor his rate would typically be $45 - $50 .. as a non-legit employee/sub his rate is $20 - $25.... dispute it if you want .. but you know that the GC who has a guy in this situation is not paying him the higher rate
2d.... if he is injured on the job he can't file under his health insurance ( he can .. but not lawfully ).. so his medical bills will have to come out of his own pocket, if he is covered by his wife's health insurance , i'm willing to bet he is not covered for job related injuries....
3d .. to assist his boss in this fraud, he has to carry some kind of insurance ( but not WC ), and he has to have some kind of license.. both at his own expense
now , let's look at the "employer" who claims not to be an employer.. of course he only claims this to certain entities... like his state licensing board, his insurance carrier, the state labor board, and the IRS.. to everyone else . including his potential customers, he has "three guys"..
where does he stand ?.. well he is paying $20 - $25 for someone who should be costing him a minimum of $30 - $38 ( with labor burden ) so let's see.... $10 - x 40 hrs x 3 guys... $1200 a week minimum less that the legit employer with 3 guys of similar skill..
and what are the down sides to the "Employer" with no employees ?
first ... these sub / employees are typically not always on top of their finances.. so they fall behind on their Income taxes.. matter of fact .. they forget to file.. or they understate their 1099 income.. they get a notice .. and they can't come up with the do-re-me.. so the IRS calls them in and does an audit.. and determine that someone owes them money.. lots of money.. so they come after the "employerwithnoemployees"..... and determine that the guy who didn't pay was actually an employee... and the "employerwithnoemployees" was supposed to be withholding wages and sending them to the IRS
big bucks are now due.. and both parties are on the hook
2d ....
the employee/sub is injured on the job..no big deal... his tough luck..
but wait... he's permanently injured and disabled...uh, oh ! this is why personal injury lawyers were invented... how long do you think it's going to take one of those sharks to peirce the employer/subcontractor veil and get everything the "employerwithnoemployees" owns.. wanna bet he'll also pierce the corporate veil ?.. in fact the lawyer probably will, and he'll wind up personally liable for the injured employee even though he was doing work as a corporation
so those are just two of the parties involved who can be and are hurt by this fraud..
now as to ponytail....Mike Smith Rhode Island : Design / Build / Repair / Restore
Mister T,
I think far too many guys oversimplify the whole 1099 thing. too many guys see the opportunity to bring home $100 more a week and jump right in. If thats all you get from the deal foget it.
Because of the nature of this business I base everything each time on 48 weeks per year. Employee or Selfemployed, 48 weeks per year.
Now lets say you are an employee who is required to have a truck and his own tools but the boss supplies big stuff like Scaffolding and ladders and stuff.
So, you have a small truck and your own tools. We're gonna use a few round numbers here for the sake of argument. Lets say your employer pays you $20 per hour and you work 45 hours per week. So, you make $950 week gross. Now lets say you pay 22% of that in taxes so you bring home around $740 a week.
you pay $250 a month for your truck, spend about $50 a week or $200 a month for gas. It costs $75 a month to insure the truck and you spend around $70 a month on tools and their upkeep.
So, your cost to bring home $740 a week is $150 or $ 600 for the $2960 a month. So, $2960 is really $2360 a month take home.
On top of that, your employer is paying WorkersComp, Social Security and few other things on you as well as his administrative costs. His cost to employ you should be aroun $30% and that depends on what and how much he does with health care.
So, in order for you to bring home $2360 a month of actual useable cash, $4940 worth of gross income needs to be generated.
As an employee, you need not worry about what happens if you get hurt as W/C will cover you to a large degree, you might want a disability policy but nothing huge. Also, if the boss can't scare up work for a month, you can file for Unemployment. If a job goes bad, it's his a$$ not yours on the hook for any liability. ( that sounds kinnda silly until one day your installing $80 per lft hand rail on a stainless steal rail in a house the customer is living in and your brother-in-law actually puts his dirty cordless down on a $100K persian rug. it's funny how fast you can recall the limits of your policy).
Now, lets say that same employer wants you to be his Sub. There is a name for such a thing, it's called a captured sub and the IRS and most insurance companies are frowning pretty heavily on it right now.
So, what is your cost of being a Sub? Well first off, you've got the same $250 a month for a truck, maybe $100 for insurance, $70 for tools and $200 for gas. Now, add to that lets say $60 per month for a general liability policy.
Now for the hard part, what about Workmans Comp? There are a couple of ways you can handle it. In some states you can actually put yourself on your own W/C policy (someone will be along any second now to tell you thats not true, but they have not a clue of what they are saying) and in some you can't. In my state I can, and when I was working almost exclusivly in New Jersey, I had to.
The other option is health insurance and a disability policy. Did you know that if you are on your wife's Health Insurance and are self employed, they don't all pay for your work injuries? Nope, lots of guys who are 1099 subs out there could find out in short order that the policy they've been getting thru their wives employer might not cover any injuries that occur at work if their are Self Employed.
So, for me the best option was in fact W/c and a small disability policy. The W/c cost $1100 a year for the base premium and included $12K worth of wages in that. My rate as the owner and a Carpenter was $11/$100.
NOw, you also have to pay the additional 7.6% as well as plan for any bad times.
So, lets say your boss says he'll pay you $25 per hour to be a sub and his big sell is how much you can write off and get ahead on.
$25 per hour, 45 hours per week (Oh yeah, no more time and a half for those other 5 hours every week) is $1125 per week. Now, your expenses per week are about $195. So, $1125 minus $195 is $930 per week. Lets even be optimistic and say you can whittle that down another $75 per week by adding on some clothes and a home office. So, now your down to $855 of taxable income. Minus of course the 11% which equals $94 so now it's down to $761 pre tax. Now, due to some write offs and a few other tricks, all perfectly legal, you may even be able to get your tax rate down to 22% including your self employment tax. So, $761 minus 22% is $593 per week take home. or $2372 per month.
Seems like an awful lot of risk to make an extra $12 per month to me. Yes, you can eliminate the W/C and it's $1100 per year premium and 11% but you'll need to replace it with something that I promise you will cost you at least $1500 per year.
The truth is, that being an 1099 sub working for your boss has zero benefits if you play by the rules. If you're willing to bend the rules a little as well as eliminate common sense, you may pocket a little more. Then again, it may all be taken away with one little mistake.
Your call.
Edited 2/18/2006 7:58 am ET by robert
Edited 2/18/2006 8:48 am ET by robert
good ...nah....great synopsis..
working as a "captured" 1099 sub mostly benefits the boss.. and he is really living in a dream world because when the shid hits da fan, the lawyers will easily prove the "captured" sub was actually an employee
and all of the liabilites will come back on the "employer"
btw.. did you read " Last True Stroy I'll ever Tell " yet ?Mike Smith Rhode Island : Design / Build / Repair / Restore
Just finished it yesterday. I usually run three miles each day and walk for 15 minutes on either end so I've been reading it on the treadmill. Good stuff. Sad ending.
It's getting passed around the office right now.
man i hate treadmills... i can barely force my self to get on the Nordic Track when i'm on desk duty.. but as soon as golf season starts up i blow it off..
right now it's 8 hours up and down ladders, so i've been telling myself that's good enough.. but of course , it isn'tMike Smith Rhode Island : Design / Build / Repair / Restore
Treadmill sin't so bad with a TV in front of it. It actually takes your mind off of the running. I can go for an hour straight at 6 MPH with the TV.
Ya know, the best shape I've ever been in was when I was running a framing crew. But, your right. It may burn the fat but those ladders just don't get the heart rate up high enough for long enough.
of course, i would like to add that for some, like myself, blue, hazlett... we're more suited to being employers or working for / by ourselves
but lots of people are best suited as employees..
there is a synergy to develop...
good employers need good employees and vice versa... don't settle for lessMike Smith Rhode Island : Design / Build / Repair / Restore
Since we're talking 1099 subs here, I thought I might talk about a phone call I got the other day from a friend of mine.
We met when we were both new in business and it started out as a work relationship. We worked together sometimes, sometimes I worked for him and sometimes he worked for me.
We became good friends and during the period of time when I was deployed he and his wife were the only ones who ever really called to se how my wife was and if she needed help with anything. We're still very good friends.
Anyway, He got audited by his insurance company. One thing the woman noticed right away was that he had paid a few subs. All of those subs had worked for him by the hour. some for a few weeks at atime.
She was kind enough to look the other way this time but she did let him know what the IRS and the Insurance companies are looking for.
First, payment to a sub without a corresponding invoice.
Second, an invoice that lists hours on it.
Third, an invoice each week (or two weeks) from the same person.
Fourth, regular paydays such as Every Friday or Every Other Friday.
Fifth, a sub who has only worked for one person i the last six months.
The fixes she reccomended.
1. Never pay a dime without an invoice.
2. never accept an invoice with hours listed on it
3. Accept invoices at the end of a job or have a paymetn schedule agreed upon in advance and stick to it.
4. establish pay dates. If you invoice is in by X you get paid on Y, if you miss X you get paid on Z. And, leave enough time for processing. If X is the 7th then Y should be the 15th.
5. If he works for you every day, he's an employee no matter anyone else says. The IRS has rules about this that lots of people ignore.
Here's the part to be scared about. A guy we both know got audited recently and all of his "Subs" Were deemed employees. Not only is he on the hook for a ton of money, but they are auditing all of his "Subs" and all of their deductions have been disallowed so far. It ain't purrty.
In the very early eighties, my father had a few guys who begged him to be 1099 subs instead of employees. He had a bunch of guys at the time. Sometimes as many as four framing crews worth. After a while he talked to his accountant and the accountant set it up. Everything looked good.
Fast forward a year and one of those "Subs' is having some personal problems that may or may not have involved drugs so he is let go.
Young man goes and files for Unemployment. Not entitled, right? He was self employed, right? WRONG. He was required to be at our jobs on certain days and was given certain tasks. He was an employee.
It cost my father $30k in 1984.
Here's the part to be scared about. A guy we both know got audited recently and all of his "Subs" Were deemed employees. Not only is he on the hook for a ton of money, but they are auditing all of his "Subs" and all of their deductions have been disallowed so far. It ain't purrty
That's why it's important to have a good Tax Attorney!
The IRS can basically do anything it wants to you, me and anybody. We're all guilty until we prove our innocence. The dumbest thing anyone can do is answer an IRS audit themselves, if they are asking for anything other than proof of a simple receipt.
If the subs are deemed employees, the employer would have to make up all of the missed deductions. The check that the subs cashed would reflect the net amount that they would have received if they were properly paid. The onus lies on the emplyoyer. The employees stand to gain in a situation like that.
blue
Robert, you lay out a real good reason why those that are taking a 1099 position should carefully learn and understand their costs. Thankfully, t hat skill and knowldege is available to every employee and 1099 sub. We all know that some people do a better job of that and it doesn't matter how they classify themselves or how they do business.
I'm not in this thread saying that being a 1099 sub is a good thing, or a bad thing, for everyone. All I'm saying is that if the 1099 sub does it right, it can be a good thing.
In the next thread, Mike points out that all your concern about not having enough WC coverage is not necessarily necessary. He points out that a 1099 sub, who is not doing all the right things will be able to get WC coverage, even though he thought he couldn't.
Understand that my thinking is geared toward those 1099 subs that want to do things right. I don't use captured 1099 subs, but I have briefly used different carpenters as 1099 subs during brief periods of need. In those cases, I would have had to either turn them away and not hire them because they refuse to work as an employee, just like I do. When I've briefly helped out a fellow contractor, I'm not going to allow him to put me on his payroll because I'm NOT his employee!
blue
"but I have briefly used different carpenters as 1099 subs during brief periods of need. In those cases, I would have had to either turn them away and not hire them because they refuse to work as an employee, just like I do. When I've briefly helped out a fellow contractor, I'm not going to allow him to put me on his payroll because I'm NOT his employee!:"If you work as an employee then you are an employee even if it is only for one hour.Whether you are an employee gets back to the IRS "test". Unfortunately there is no simple pass or fail to give a clear cut answer in any circumstance.
If you work as an employee then you are an employee even if it is only for one hour.
Whether you are an employee gets back to the IRS "test". Unfortunately there is no simple pass or fail to give a clear cut answer in any circumstance
I'm not smart, but I know how to pass tests!
blue
Blue,
I don't know much about Michigan but around here it's easy to see why this becomes a topic of much debate.
In another life I made a very comfortable living as a Sub who trimmed, installed stairs and rails and generally subcontracted finish work. I often worked for a friend or had one work for me for a day or two here or there.
It was work to keep it all on the up and up but in the end was worth it.
What we're mostly talking about it's guys who are using "Captured Subs" to eliminate their costs and resonsibilities of being an employer. I know far too many guys who have gone that way in the last ten years.
Imagine a Framing Crew where every guy from the laborer to the lead man was a "Sub". In fewer miles than it will take for my Explorer to warm up and make heat, I can find maybe ten such crews. All being told what time to show up, what to do and using the bosses tools and truck even.
As for the W/C? Yes, they will eventually get access to W/C if it is deemed they were employees not subs. But how long will that take? IN the case of the kid that worked for my father, it took over six months for it to be sorted out and for him to get unemployment. How much could go wrong in that time?
Yes, there are a lot of one man operations out there, A few who frequent this forum come to mind, Who know exactly what they are doing and are legitimate Subs. And for everyone of them there are most likely ten out there who are nothing more than employees whose boss has convinced them to help him get over.
very well thought out...& written....
pony
The owner/foreman runs 2 glorified helpers. I'm not sure how he operates his business. I've only followed behind him as a trim sub for the same builder. I've never hired him personally as a sub.
Until 2 years ago, when I went solo, we framed everything ourselves.--------------------------
It's only satisfying if you eat it.
That's generally the crew makeup of the guys who will take the cheap frames around here. And by cheap, I mean $4.50/ft.In one of the nicer communities here in Gainesville, one of the most respected builders is paying $5.75 for a one-story and $7.50 for a two-story.Yeah, I know square foot pricing sucks, but you can either take it or leave it for someone else. When we are building our own homes or customs, obviously we can name the price, but most builders here are stuck in that square foot mentality.
The 1099 B.S. is the only game I've ever known, period. Such is the life.
Hi
I have lived in Raleigh NC for 8 years now after leaving NY. There is a lot of work in the Raleigh area. They are expecting this place to almost triple in the next 25 years. I work for a turn-key trim company that does all high end work. Our trim jobs range anywhere in price from $15,000 to well over $200,000 including stairs, coffered ceiling, lots and lots of built ins, 5 and 6 peice crown (you get the point). I can post pictures, even thow I am not very good at that, for anybody who wants to see what I mean by high end. His pay rate is anywhere from $15 dollars an hour to $55 dollars an hour. I get $55 dollars an hour and I do most of his stairs and stain grade stuff. We are all sub contractors and have ALL of our own tools, comp and liability. You would not have a problem making in the $20's if you where an employee with somebody, but most of the people in this market are subs. This is for trim guys. Decks, framers, siders make less (in the teens) because of the amount of people that can do that work. If you have any other questions let me know. Good luck.
Nate
Hi Nate,
Thanks for your input on the work in Raleigh.
I am currently livivg and working in NY but am seriously concidering coming to the Raleigh area. If you are willing, I would be very interested to know about any possibility of work in your area.
Thanks,
Peter
i too am new to north carolina, moved from california and so far liking the change. fortunately for me the real estate market allowed me to make a profit on 2 spec ventures in cali, and in summer of 05 i decided to reinvest equity in a location where the climate was nice, not as crowded, plenty of work for a construction type, and the equity goes a lot further than it would on the west coast.
i have been a construction professional all of my adult life, i have always been good at what i do for a living, and i sought out challenging projects that would stretch my inventory of skills over and over again. i have done many different things in construction, and have been successful at it because i worked hard at it.
i am new to being in business for myself, the last 4 years, and i know i have much to learn about the business side of things, but i have been asking questions, reading, and paying attention. there is a huge book at the library (way thick) about avoiding taxes, re-written every year by some genius tax lawyer, i forget his name.
now i don't have it all memorized but i think i get the basics, one point is that as a businessman you don't have to make money. you have to try, but you are allowed to fail. you can write off more than what you make, it is a fact for many companies and small business people that they lose money.
everything is about business. everything. i am constantly thinking about business. everywhere i go is for business. everything i do is for my business. i have heard over and over on this forum about the lengths you fine home builders go to in order to make a profit and stay in business, how can it be anything else but business almost 24-7? especially at first?
so why would it be difficult to write off almost every expense you incur, especially the first few years you are in business, or even longer if for business purposes you relocate, and have to adjust to a new set of circumstances?
it is perfectly legal to find out what the tax laws are, and to educate yourself and plan to take advantage of those laws to minimize your tax in business, and whatever you spend doing it is a write off as a legitimate cost of doing business.
segundo... yes, you can lose money for several years.. but if you don't eventually show a profit, the IRS will reclassify your "business " as a hobby and disallow your expenses
and one of the points being made is that a good business is still about the golden rule.... if you treat others as you would be treated , eventually it comes back in spadesMike Smith Rhode Island : Design / Build / Repair / Restore
Here in Raleigh, been on my own for some 3 years plus so don't know current rates. Do know many 'contractors' (and I use that term loosly) 1099 their guys. Be guesstimating around $16-18 an hour for an employee.
The 1099 deal would never pass even a sniff test with the IRS if these 'contractors' were audited, based on the 'ten commadments' that determine an employee/independent status. ie set your hours, control the level of quality, have a vested financial interest, etc. etc. etc.
Does hurt those contractors trying to do right by their employees competing with those 1099'ers.
Please accept my aplogies for the venting, it's a sore spot for me.
Let's not confuse the issue with facts!
You guys really do hate 1099's. I dont understand everybodys dislike of them. Like I said earlier, I get a 1099 (and have for about 6 years) and love it. I get a hourly rate that is good, I am Incorporated, have all the same Ins that everybody else does ( comp., liability, health, disalbility,). How can you keep good help when you pay them 16-18 dollars an hour? I work with 16 guys and they all could be out on their own, but are not because they get paid well. We have discussions alll the time about the tax law. I Inc because I have my general contractors license and I might want to build houses one day, and I can because I have a company set up to do it. You do get guys that take advantage of it, but you also have guys that take advantage of their employees by paying them a low rate. I understand if you are doing a trade where you can not afford to pay well, but if I produce $700 dollars a day for somebody, I want 70% of that (since most carpenters can not do interior stairs). I think we got of track with what the original theard was about.
Nate
It's not really an issue of hating 1099 workers (I myself just sent out about two dozen) it's that there are a lot of guys who use a 1099 illegitimately.You're incorporated, have WC & GL insurance, and I would imagine any other locally required licenses as well. I have absolutely no beef with you then. You may not completely pass all the criteria that the IRS uses to determine if you're a sub or not (do you set your own hours and supply your own tools?) but the important thing is you're legitimate.A lot of "subs" are guys getting paid the same amount they would if they were an employee, no insurance or taxes paid on their "business", which allows the contractors who pay them to charge much less than those of us who play by the rules. Therein lies the problem."I think we got of track with what the original theard was about."Welcome to Breaktime.
Jon Blakemore RappahannockINC.com Fredericksburg, VA
I'm with you Nate.
Personally, I would never accept employment as an employee. I think it's crazy to toss so much good money away by eliminating all the deductions.
Every one of these somewhat illigitimate independent contractors are tossing money down the drain because they don't want to embrace the american business was of lowering their taxes. That's their prerogative.
I also agree with your numbers regarding productivity. If you can produce $700 per day, most bosses will pay you accordingly. That simple fact is lost on so many trademen. It's a simply equation: produce more quality product and you'll get more compensation. This simply fact works in any area of the country.
The only problem to that equation is that often the bosses stand in the way of improving production in terms of speed and quality. In that case, find a more openminded boss. I personally would pay anyone 70% of their production and if that means I had to pay $500 per hour, I'd be tickled every time I wrote the check.
blue
Lets face it guys!!!! As carpenters were never gonna get rich doing what we do. We'll make a decent living. The trade off is we love what we do and there is alot of pride in what we do.
LMC
"Lets face it guys!!!! As carpenters were never gonna get rich doing what we do!"I have a feeling that Blue will agree with you 110% that there is no money in carpentry.
Jon Blakemore RappahannockINC.com Fredericksburg, VA
I'm living proof of that!!!!
The only reson Jesus was a carpenter is he knew he was gonna inherit dad's business...
Mr. T.
There's a steering-wheel in me pants and it's driving me nuts!!!
Jon,
Some time back,
you asked what a 1099 sub could deduct that an employee could not---------
Please consider
It is not WHAT----but WHEN.
an employee deducts his tools AFTER SS taxes have already been paid---1099 writes them off BEFORE SS taxes.
employee makes a contribution to a charity AFTErRSS taxes, 1099 writes the same contribution off BEFORE SS taxes.
employee buys that truck AFTER taxes, 1099 buys it BEFORE taxes---AND decides if he would rather write it ALL off this year---or spread the depreciation out over several years
1099 may often be able to shift substantial income from one year into another---thereby effecting WHEN the best time to write of the new truck
i could go on an on-----cel phones, repairs , etc.
I agree with blue---- I would never accept an employee status for myself( at least untill I am "retired"
Best wishes, Stephen
Stephen,Very good points.
Jon Blakemore RappahannockINC.com Fredericksburg, VA
I agree with blue---- I would never accept an employee status for myself( at least untill I am "retired"
Stephen, you won't even do it then! Once you know the game, you'll always know that it makes little sense to go back.
blue
Blue,
I can't see EVER accepting employee status----while I am still working to earn a living.
but I might once I retire----and when the earned money means pretty much nothing to me.
working only 1000 hours a year for the last 18 years has taught me that having too MUCH free time is worse than having too little.
when we are busy, busy, busy---we naturally think there would never be enough time to do all the things we would rather be doing.
but in fact---rest is only pleasurable---if you have work to rest from( for every thing there is a season)
So---when I reach the point when I no longer need to earn----health permitting, I will almost certainly take a " real job" of some kind---just to ad a certain structure to my days.------- It might be " employee status"------- or--since I don't need the money---it might be " volunteer status"---even if it's just pushing a broom, or giving tours at a historical site, or sorting canned goods down at the food bank.
I hope to die on the job ( about 40-50 years from now).
( Let he who would not work, not eat)
best wishes, Stephen
Better recheck that charitable deduction. I believe does not apply to Sole Prop. Different for any of the coprorate structured businesses. I guess the rationale it to keep you from doing your donations and then taking the standard deduction.
I could be wrong but think I'm right.
rasconc,
I wouldn't want to confuse anyone----- but I am not a sole Prop.
I am a LLC.
Lets say as an individual I want to give money to my parish building drive, or my kids school fundraiser, etc.
Much better to have my LLC do it---as advertising. " Certainly Mr. Fundraiser---- We will buy a $500 ad in your" night at the races" racing program,--- " Certainly, Building Commitee------ will 5K help you out with that scoreboard?"
I have yet to find a situation I wanted to give to---that I couldn't turn it into advertising-----and I can give MUCH more that way. and the money goes to work for me right here in the neighborhood.
hope that clears things,
best wishes, Stephen
The IRS does not "reconize" LLC's.That is there is no special provision in the codes to handle them.Depending on the details of the LLC (signle or multiple partners) and election the LLC will be treated as sole proprieter (for employement income), a partnership or a corporation.I am not sure about a corp, but I know that the SP can't deduct charitable contributions.However, "true" adverstising is different. Get a business name on something as a sponsor in the program or the back of a uniform and it is advertising.But write a check to the Salvation Army and forget about.
I thought I had it pretty much right.
Bill,
I am not certain exactly what point you are trying to make( most likely my fault!)
however--------- if my parish is building a gym---and I would like to make a mid 5 figure donation
no way I am gonna do it as an individual
instead my business does it----- say pays for the score board and gets it's name on the scoreboard---- it's advertising
I could---as an individual gamble away a few hundred dollars at a " night at the races" fundraiser---------- or I could buy an ad in the program for $500--- advertising.
schedule c,part II, number 8
it's much more advantageous to have that expense on schedule c----than to have it on schedule a, line 15
absolutely legitimate----- this parish is the geographic center of my customer base
It's also why i advertise weekly in the parish bulletin------ it's good business--- good for me, good for the customers, good for my little community.
i work here,earn here, invest here, advertise here---we all benefit.
Best wishes, Stephen
He is agreeing with you, the things you mentioned are advertising. Just writing a check to the Parish (or Salvation Army as BH said) would not be "advertising". It is like the "Symphony, Theater Group, etc" list of benefactors contributions are would not be deductable for SP (or LLC being teated as one) but that ad in the program would. They would be in the personal part ( schedule) if appropriate charity. It would be post self emp tax as you pointed out.
For me I take the standard deduction, I am very fortunate because of the way healthcare and low mortgage int work out. Not the norm I would guess.
"schedule c,part II, number 8"Then you are being taxed as a SOLE PROPIETOR.But that is not what you said earlier.The fact that you are an LLC has nothing to do with this." I wouldn't want to confuse anyone----- but I am not ####sole Prop. I am a LLC."And this is what you orginal posted that Rasconc questioned."employee makes a contribution to a charity AFTErRSS taxes, 1099 writes the same contribution off BEFORE SS taxes."He was 100% right. On Sch C you CAN NOT DEDUCT CHARITABLE CONTRIBUTIONS.But in the other response you changed it from CHARITABLE DEDUCTIONS to ADVERTISING."I have yet to find a situation I wanted to give to---that I couldn't turn it into advertising-----and I can give MUCH more that way. and the money goes to work for me right here in the neighborhood."And I would like to point out to general lurkers that while for YOUR BUSINESS that ADVERSTISING is a very liget deduction.But would not be for everyone in construction. You sell to the public in a relatviley small area. But say someone that does granite CT's and only sub's to Kitchen/Bath shops all over a large metropolitean area might not have even one potentional client that is the area that is served by the advertising. In a detailed audit that would be disqualified. (However, that is getting too far from the general concept of sub/employee and deductions).Actually an employee (or potentional employee) could take such an advertising expense if it was directed to potinonal employors in an area that they would see. However, as pointed out earlier it goes on sch A, subject to 2% AGI reduction and after SS taxes are computed.
Bill your knowledge of tax law is scary.
Your posts also make agood case why the entire tax code should be overhauled. Just think of how much more productive our society could be if we eliminated all the paper shufflers and figure studiers and freed them up to actually produce something!
Be a flat tax advocate.
blue
Wow
I was just browsing to see what was up with Finish carpenters pat in NC
What I got was a leson in Bussiness
Great stuff.
I found myself interested in the things Blue has to say.
Rick Sheehan
Self Employed
Have done the 1099 thing about every way mentioned
pros... me too.. i love the things blue has to say.. but i've actually met him (?)
he's really a 12 year-old girl with thick glasses.... so take his advice with a dose of saltMike Smith Rhode Island : Design / Build / Repair / Restore
Bill,
I am sorry---but I am still not quite catching what you are in an uproar over.
could we be bogged down in semantics?
would it have been clearer if I had NOT mentioned the LLC?( Actually, it's technically a Partnership---but as the sole member it is a Partnership of ONE---hence the schedule C.---- much better to put the contributions/ advertising on the schedule C---still leaving me free to take the standard deduction if I wish( having my cake and eating it too!)--- or going ahead with schedule A
as an employee---- I would not be able to afford to make the charitable contributions I want to make
As an LLC--- I can, because in my specific case I am able to make the contribution in the form of advertising
what's the problem?
how is it relevant that a granite counter top sub might or might not be able to do the same thing ? the granite counter top sub might conceiveably be able to structure things in a way I don't.--- I am not gonna work myself into a Knot over that. LOL
I spelled out my specifics pretty clearly---- a reader is free to investigate the possibility of it's applicability in his own situation.
what's the big picture here?----- well, some people might very well be better off in a 1099 arangement. Some people might not be.
Best wishes to you,
Stephen
Other people read this thread.Personally I don't care if you stick twenty's with your business card under the g-strings of exotic dancers and deduct it as advertising expenses.
Many people read these threads and while it is impossible to cover all the details it is possible to make sure that the basic information is correct."could we be bogged down in semantics?"Semantic are important. That is the only way that information can be excahnged. While similar there is a huge difference between Lighting and Lightning."As an LLC--- I can, because in my specific case I am able to make the contribution in the form of advertising what's the problem?"First of all an LLC does not have to do with anything about the taxes.What does control is on what form those BUSINESS expenses are reported.For BUSINESS EXPENSES they have to be Necessary and Ordinary (for that type of business activity, size, customers, etc). What is nessecary and ordinary for Tole Brothers would not be the same as what is ordinary and necessary for a painter.That is the same no matter what kind of business expense it is, equipment, material, and advertising.And includes all activities pertaining to making an income. It does not matter if it is as an employee or SP or a corp.CHARITABLE contributions are not ORDINARY and NECESSARY BUSINESS EXPENSES.They can only be deducted as a personal expense on sch A.The test for deductability of charitable expenses depends on WHO is getting it, a government enity, a curch (but not a school operated by a church) or a 501(c)3 reconized organization. And it can't be for the benifit any specific person.The test for a charity contribution to be deductabile is WHO it is too. A test for a business expense is WHAT it is for. It does not matter who the paymnet is made to, whether it is the newspaper or school calendar, what matters is that it is ordinary and necessary business expense.Now mention CHARITABLE CONTRIBUTION during an IRS audit of BUSINESS expenses and you spend the next several hours explaining in DETAIL how each and every "so called" business expense is necessary and ordinary. And you may lose some.Now an employee can deduct the same basic ordinary and necessary BUSINESS EXPENSES. But as mentioned early they as benifital as they are subject to 2% AGI, standard deductions, and it is after SS taxes are computed. And the employee has less ability to structure there business activities as the SP person.But a SP roofer can deduct a nail gun just the same as an employee that does roofing.Nowever, neither one could deduct the cost of a drywall lift as it is not a necessary and ordinary expense for the business of roofing.While I would not guarantee it without some research (which I am not going to do) I think that an employee could deduct advertising expenses if it was ordinary and necessary for that particular business active. The basic requirment would be person was commissioned so tha there income was directly related to the amount of business activity and advertising was related to inreasing that business activity.
Bill,
I worry for you--- I am afraid you might be going off the deep end.
How did our conversation start?
I simply remarked to Jon, in post 69015.67----------- that it was WHEN, not WHAT a deduction was made----that might make 1099 status preferable to employee status.
I mentioned contributions
Rasconc was quite correct to point out the situation regaurding contributions
AND--- I was quite correct to further explain that instead of simply making a SMALLER contribution---like I would if I was an employee--------I am instead able to buy advertising on programs,scoreboards etc.---in effect giving a LARGER amount than I would be able to as an employee------------ The whole point being that the advertising was written off at a more favorable time----that is PRE- S0c.Sec. taxes
as compared to the employee making his contribution post soc.sec. taxes.
that it---quite simple
what's all the fuss about
Oh, I know----I believ I mentioned that I am an LLC-----and you for some reason have taken offense.
Anybody reading this who has set up their business as an llc, or a corp.---has likely recieved the same lecture from their lawyer that I did. You must make clear at every opportunity that customers are dealing with a seperate entity---the llc or the corp.-- the customers are not dealing with " john smith"------ they are dealing with"john smith, president xyz ltd." etc.
In my case the llc is, I guess termed" a pass through entity"----- it's existance is relevant to our conversations-------as I doubt any employees are recieving checks made out to " xyz ltd."
Now---what was going on here Bill? you seemed so angry and worked up about something-------- and it didn't seem to have ANYTHING to do with my remark to Jon.
If it makes you feel better, I will cheerfully aknowledge that you seem to have a much more extensive knowledge of the tax code than I do. that's perfectly fine with me----- I don't need an extensive knowledge----- I am only concerned with the little bitty part pertinent to my business.
Other than that----- I guess we are just going to have to "agree to disagree"-----although for the life of me I have yet to decipher what the heck it was that you wanted to disagree ABOUT !
Best wishes to you,
Stephen
At the risk of getting shot in some crossfire, I'm going to step in here to mediate, I thnk.
I think Bill is just trying to point out the specific IRS rules and regs that can get you in trouble if you say the wrong thing, Stephen. I don't doubt his explanations one bit, and I can tell you don't either. I also think he's kind of looking out for some of the lurkers who might just take a simple, but slightly mis-stated idea, and use it. Basically, he's attempting to keep the facts straight.
This demonstrates how critical it is to NOT be involved when the IRS comes auditing. When that audit comes in, if you want to minimize your aggravation and tax burden, you almost always have to consult with professionals instead of answering the questions yourself. Unfortunatly, this takes some extra cash, sometimes, but if the cash isn't spent upfront, the disaster waiting at the back end might be catastrophic, simple because of some mis-spoken words!
blue
Edited 2/20/2006 9:07 am ET by blueeyeddevil
The 1099 shell game is crap at best. Contractors treat us like employees but don't pay us as such. I paid more in taxes, had a bill every year. There is a reason for withholding...if I bring in a grand to my family and we have utilities to pay then oops then the "tax" account dosen't get deposited. And the write off scam? Unless you buy enough tools to outfit a crew every year you loose out on the standard deductions. Your boss writes off the expenses, you get crap. I finally landed a W-2 job two years ago, trimming, my kids health is taken care of (the expense for providing same by myself was near twice what I pay now), our taxes are paid into and we actually got a return. The mortgage company gave me hell as a 1099'er, as an employee the papers were handled toot-sweet. The only people telling you that you're better off are the ones handing you that 1099. They take advantage of you and your situation. And I gross $120 less as an emp than a 1099'r per week, worth it...we drink cheaper beer and eat more ground beef.
Mb.
I'm just on the other side of Kutztown from you so I know what you mean. The 1099 shell game is big around here. And worse, so many guys around here fall for it.
What area are you working in and how are things there?
My company is out of Reading but we're all over; Cutler Group Building in Plymouth Meeting, York Hospital, Pocono Medical Group Hospital, residences and private schools in Chester County, M. Night Shyamalan's editing studio in Paoli, homes on the Jersey shore, industrial installs in Denver PA, yadda yadda yadda. Things are a little lean now but that's the biz. We have several projects that just kept gettin' delayed, we have'ta wait til they're ready for us you know? It's a good company though with interesting and challenging work.
Looks like your in the same situation as a lot of guys I know from around here. Seems like almost everyone on this side of PA is working somewhere far from where they live.
Any idea what Framers are getting in and around the Montgomery county area these days? Last thing I framed there was for Cutler Group. Got $3.25 a sqft and was happy to get it.
I can't speak towards a square foot bid price. I was just an indi with toolbelt and hammer. The guys I framed with pulled down from $12 to $18 as I remember and we built for Cutler (in Exton, can't remember the name of the development but it was behind Home Depot and chopped into the side of a hill. I hate to hear about their water intrusion gripes, sheesh!) plus Pohlig, Dixon, Ryan, Gambone and others. That was framing, I couldn't say what finisher's got. I figure as employees, with bene's, competent if not talented, they'd get from $14 to $25 an hour on the books. That is an extrapolation though.
Montgomery County (born and raised there) is pretty built up and there is resistance to more growing. Berks, Lancaster and Lehigh seem more open but less paying. I'm seeing a growing market for renovation, restoration and such in Montgomery. But there is more land up around Greenlane and west of Willowgrove as more farms die and are bought. Such is life. There is also a decent market for the high end work along the Main Line, rich folks who just wanna spend cash ripping stuff out, demo and rebuild, add-on and such.
Currently I'm working in Stroudsburg, two and half hours each way and getting an hour's travel pay. Since oil has gone up, travel keeps getting cut but then I do still have a job (knock on wood).
I'm in Lehigh County now.
Yeah, the pay is pretty low for some of these guys. I'm in Upper Macungie twsp, not far off of RT 100. Pretty close to the turnpike.
The new "Jandl" bypass will open up a ton of land for development. LowerMacungie is getting built up pretty fast also. Ryan, THP, Pulte and a few local builders all have projects within spitting distance of each other.
I think it won't be long before the infrastructure is over taxed and things have to shut down.
The next big hot spot will be the Rt 33 corridor.
If you are running an INC business then you should not be getting any 1099's.The BUSINESS should be getting the payments not YOU!
LET ME BE MORE CLEAR: My BUSINESS gets my 1099 and then I pay myself. No matter how you look at it, I am a sub of a sub. I am sorry that I had to clarify that for you.
Nate
I think what he is telling you is that the customer is not required to do a 1099 to a corporation (there are exceptions but not too much in our line of work).
For Jon Blakemore:
A sole proprietor would do a schedule C and on line 29 of form 1040 there is an entry for Self employed health ins ded that is fed from sch c line 15.
Edited 2/1/2006 4:21 pm ET by rasconc
Do you have employees?
I can understand your having workers compensation insurance if you have a business and employees, but if your biz is just you, do you really have a WC policy?
I don't know how things work in NC, but in NY where I operate, WC coverage rates for a sole proprietor are ridiculously expensive. Part of the explanation is that the insurers figure you can be on the clock 24/7.
Because a sole prop has no employees, there is really no one to insure, which is why hardly any sole props carry WC.
Sole prop subs are exempt from WC coverage by the businesses for whom they perform work.
Here, the contractors that were scamming the fed and state by hiring carpenters on hourly cash rates, and not carrying them on a payroll, are having a harder time due to new diligence by the building jurisdictions.
No permits are issued now unless the building office is furnished certificates of insurance evidencing coverage for workers compensation, general liability, and disability.
I do not have any employees. Just myself. In the state of NC you do not have to have WC if you have less then three employees. I have a basic policy that I pay $850 dollars every year for. When I get my audit at then end of the year if I show that I did not have any payroll, not including myself since I can not collect on it, then I get a rebate for $500. All of what I just told you is a regulated by the state. They set the premium and everything else. General Contractors IN NC will not let you work on their job unless you are covered threw somebodys WC. If you do not have it, they pay you and they can not show that you are covered, then their insurance agent charges them the 11% premium ( carpenters rate). If I did have employees I would have to pay that 11% premium for them. So I pay the $350 net a year and have disability insurance instead ($95 a month). I could be covered under my WC but I would have to pay the 11% of my gross labor ($125,000) Just playing by the rules. I should tell you that GC almost (97% [ don t ask me where i got that number from because I just guessed]) never have carpenters on staff. Maybe some remodelers might but only a few. It is just them, office staff, and superintendents. EVERYTHING is subcontracted out.
nate
P.S. My dad was a GC in NY and when we moved down here it took a little bit of time to get used to the regulations in NC
Edited 2/1/2006 7:58 pm ET by lozinsky
Sole proprietor does not refer to the number of people invloved, it has to do with the ownership structure of the business. Sole proprietor, partnership, LLC, incorporated, etc. A sole proprietorship can have employees and all those other rules still apply.
You gotta factor in the cost of living at whatever your destination is vs your current location too.